Lax ethics policies create 'culture where anything goes' at NTTA

A follow-up to the legacy contractor piece that ran on Jan. 1, 2012. It would later win the Dallas Bar Association's top prize for an feature-length story about the law.
It also brought immediate changes, including new ethics policies.

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Lax ethics practices raise questions at North Texas Tollway Authority

BYLINE: Michael A. Lindenberger, The Dallas Morning News SECTION: STATE AND REGIONAL NEWS LENGTH: 3545 words Jan. 01--The North Texas Tollway Authority operates under ethics practices so lax that directors have fostered an "anything goes" culture, routinely involving themselves in high-dollar deals with firms that enjoy personal, financial or professional ties with board members. Some conflicts are so obvious that state law requires board members to disclose them. But even then, scant details leave most board colleagues and NTTA executives in the dark about the extent of entanglements, The Dallas Morning News found. At other times, board members are simply never told of colleagues' potential conflicts. The lax practices have raised questions -- both inside and outside the agency -that the board chairman and others say undermine NTTA's work. "It's as if the rules at NTTA are such that anything goes unless the money is actually changing hands," said Victor Vandergriff, a former chairman who remains on the board. "The potential conflicts are allowed to taint everything else we do." Among the findings from thousands of pages of meeting minutes, transcripts, emails and memos reviewed by The News: Former board chairman Paul Wageman involved himself in a contract being negotiated with Union Pacific Corp., which was a client of his law firm. That deal has, so far, resulted in NTTA paying the railroad at least $46 million. Current chairman Kenneth Barr helped associates land legal work with NTTA without disclosing his full connections to the public or his colleagues. The issue of potential conflicts has recently drawn the attention of the FBI. Investigators have not said what, specifically, drew their scrutiny, and no one has been accused of wrongdoing.

NTTA disclosed in October that federal agents had interviewed its officials about potential conflicts of interest among current and former board members. More recently, the board voted unanimously to reimburse one director, Denton County appointee David Denison, for his ongoing legal expenses tied to the investigation. NTTA officials have said only that they are cooperating with investigators. Concerns about possible conflicts are not new within NTTA leadership. "I've served on a lot of boards," said Bill Meadows, a member of the Texas Transportation Commission and an NTTA vice chairman until 2008. "I've never been required to disclose less information about potential conflicts than I was during my time at NTTA. That just didn't seem to be an issue there, and frankly, that was a little bit weird." Wageman said that, as a lawyer involved in public service, his reputation is "everything to me." He said he conducted himself with honesty at every step of the way during his long tenure at NTTA. He has been credited with strong leadership during a period of rapid expansion and political confrontation. "I conducted myself as I thought was appropriate and honest and to always do what is best for NTTA," Wageman said. Barr, the current chairman, acknowledged in recent weeks that he and other board members have allowed questions about their integrity to tarnish the agency's reputation. "We must regain that trust," he told The News recently. "That's our most important job." Created in 1997 The Texas Legislature created the North Texas Tollway Authority in 1997 as a locally controlled successor to the old Texas Turnpike Authority. Eight of nine board members are appointed by the county commissioners in Dallas, Tarrant, Collin and Denton counties to oversee toll road construction and operations. The governor appoints the ninth. NTTA started a rapid expansion four years ago. Since 2007, NTTA has borrowed $6 billion, bringing its debt total to $9 billion, and mushroomed into one of the region's biggest spenders. It now includes nearly a dozen major toll projects in the four counties and collects $1 million a day in tolls paid by North Texas drivers. Despite its growth, NTTA has retained its original business model, relying on few in-house professionals in favor of spending big on outside expertise. In just the past four years, the agency has awarded $2.2 billion in contracts to hundreds of local and national firms. That volume and diversity of spending all but guarantees that the professional and financial interests of NTTA directors will, from time to time, intersect with those of the firms winning business. Trouble policing those intersections was among the most-scathing findings in an audit of the agency released in October. Auditors found the board had

inadequately policed its own real and potential conflicts of interest, leading to the "widespread perception" that board members' business interests were too closely aligned with NTTA spending. Wageman's actions when he joined the board in late 2000 show he was sensitive to questions of ethical conflicts. According to a letter reviewed by The News, he wrote NTTA executive director Jerry Hiebert on Feb. 28, 2001, to say his law firm, Winstead PC, represented the engineering company Carter & Burgess. "I wanted you to be aware of this relationship so that the NTTA, its board and I can take the necessary steps to avoid even the appearance of impropriety," the letter reads. He said he wanted to abstain from voting on matters affecting the company even though the board's outside counsel, Frank Stevenson, had told him state law did not require him to do so. In time, Stevenson developed a six-page form that told directors before each meeting every business that would potentially be affected by a vote on the agenda. The form also walked them through the calculus for deciding whether they must abstain from voting. Voting abstentions By the time Wageman became chairman in 2007, NTTA's growing workload meant that he was regularly abstaining from votes on contracts involving a long list of Winstead clients. Among them: railroad giant Union Pacific Corp. and Jacobs International, an enormous professional services firm that swallowed Carter & Burgess en route to winning tens of millions in NTTA contracts. At meeting after meeting, Wageman routinely announced from the dais that he was abstaining from the next vote out of an "abundance of caution" because a proposed contract recipient had been a client of his firm in the previous 12 months. UP negotiations Not always apparent at the time was the fact that Wageman, though he might have abstained from voting, was sometimes active in discussions related to those clients before the votes, according to documents and interviews. One example involves Union Pacific. NTTA spent months in negotiations to persuade the railroad to make changes at its Davidson rail yard to accommodate the Chisholm Trail Parkway, a 27-mile toll road in development from Fort Worth to Cleburne. In the end, NTTA got the changes it needed -- but at a cost. So far, NTTA has paid the railroad $46 million as a result of the deal signed on New Year's Eve 2008. Wageman didn't vote on that contract. He publicly abstained during the meeting, so as to avoid any appearance of impropriety.

Though he abstained from voting, he took an active role in talks with UP. In the months leading up to the contract, Wageman worked on the deal with Fort Worth Mayor Mike Moncrief and UP chief executive and chairman Jim Young as teams for the two sides negotiated. Wageman concedes UP has been a Winstead client, but he says any action he took was on behalf of the tollway authority and not Union Pacific. "You know me, I was a zealous advocate for NTTA during my entire tenure there," he said. "During those calls, Moncrief and ... Young and I would basically be talking about where things stand and we would be trying to tell Jim that we'd appreciate you talking to your team to get them to be reasonable. "I was not negotiating, I was not part of the negotiations team. ... These guys would go to Omaha and literally camp out three or four days, I think we had seven or eight guys there. The document is voluminous. I was just trying to get this thing done. "I was not participating in should they get the contract," he added. "I was participating with the principals to try to drive them to some kind of conclusion but I wasn't in the weeds in the details." Wageman said no one on the board ever confronted him with even a hint of concern about the practice of involving himself in clients' matters and later abstaining from votes. He also said he was assured by Stevenson that there was, in fact, no legal requirement that he abstain on contract votes. He did so only out of respect for appearances, he said. And if there was no legally defined conflict to prevent him from voting, Wageman reasoned, then he had no formal obligation to abstain from contract discussions involving companies that were clients of his firm. "I was sensitive when I joined the board to conflicts of interest," he said. "I met with the counsel at the time, Frank Stevenson, and he opined that my abstention from NTTA matters involving Carter and Burgess and other Winstead clients was probably not required under the applicable law. I looked at that memo recently and that is what he wrote." In an interview, Stevenson initially said Wageman's conflicts had left him no legal choice: Despite the public announcement that he was doing so out of an abundance of caution, he had in fact been required to abstain from voting. Later, though, Stevenson said he had been mistaken: He had written a legal memo at the time advising Wageman that the law "probably" did not require him to step aside from voting on matters that affect his clients. Stevenson said the advice was based on a March 1996 opinion by the Texas Ethics Commission. The opinion said a law partner is not disqualified from voting on a matter involving his firm's client when the client fees represent only a "negligible and insignificant" portion of the firm's total revenue. Wageman has said no Winstead clients who came before him for NTTA business provided more than 1 percent or so of the firm's total revenue.

The NTTA has declined to provide The News with a copy of Stevenson's legal memo, explaining that it would not waive attorney-client privilege to do so. Concerns raised Wageman's handling of matters that had an impact on firms doing business with his law firm had bothered people in and out of NTTA's inner circle. In Austin, Rep. Rafael Anchia would tell NTTA officials that concerns about Wageman's potential conflicts were among the reasons he sought to subject NTTA to state oversight during the 2011 Legislature. That effort was defeated, in part because NTTA employs a powerful team of lobbyists in Austin and because it agreed, however reluctantly, to pay for an external audit by a firm selected by county judges in Tarrant, Dallas, Collin and Denton counties. But closer to home, some fellow board members also were alarmed, they now say. They let it go after Stevenson or their colleagues assured them it was proper. Barr said "there were some people who felt Paul had far too many conflicts and he tended on some of them to participate in the discussion and then declare at the last minute he wasn't going to vote." "Not only that, he directed the discussion in some instances," Barr added. It didn't look right to Vandergriff, either. "I inquired about it with Frank," Vandergriff said. "I was told he was OK, that a director who is an equity shareholder of a law firm can participate in votes involving the firm's clients. But it stuck out to me, because I had just come from serving on the Arlington [planning] board and the rules were very different there." Vandergriff said he was wrong not to take up his concerns with Wageman at the time, and shouldn't have let Stevenson so easily brush aside those concerns. He said he should have insisted that Wageman stop participating, or even attending, board meetings when his firm's clients were discussed. "I asked myself, 'Why is he still here?' But there were bigger fish to fry, at least I thought so at the time," he said. Vandergriff defends Wageman as thoroughly honest but blames lax ethics rules for casting the agency in poor light. Barr also wishes he had said more at the time. "There was a way of doing business that needed to be changed," he said. "I regret that I wasn't more aggressive in questioning why we were operating the way we were." Going forward, he added, the solution is easy enough: "I don't think that is going to happen anymore," he said, "I will certainly blow the whistle on it if it does, not as chairman, but as a board member. I believe if you have a conflict you need to state the conflict and what it is, and cease to participate completely and immediately and comprehensively."

So-called legacy firms But as Barr attempts to forge a new culture and new rules, he will be championing behavior that contrasts with his own conduct since joining the board in 2007. One example: For more than a year, Barr was a strong opponent of efforts to reduce the influence of Locke Lord Bissell & Liddell, NTTA's outside law firm since 1953. Locke Lord is one of five so-called legacy firms that have been paid hundreds of millions of dollars over several generations to be the authority's lawyers, engineers and financial advisers. But Barr has never felt the need to disclose that his brother, Andrew Barr, has for years worked as a Locke Lord "of counsel" attorney, meaning he works for the firm but not as an equity partner. Barr said he talked with Stevenson and another attorney about his brother's employment, and he read state law himself, before agreeing to serve on the board. "It was clear that no conflict existed," he said. Stevenson, in an interview, confirmed Barr's reading of the state law. He said a brother's employment in a firm paid by NTTA does not disqualify a director from voting. In addition, he said, Andrew Barr does not share in any firm profits, and he has never worked on NTTA matters. Vandergriff, chairman during contentious discussions over whether to lessen Locke Lord's workload at NTTA, said board members had a right to know about that connection and any others. "I am sitting there as chairman, and I don't have any idea what potential conflicts may exist for my colleagues," Vandergriff said. "That's just wrong." Barr readily acknowledges that his handling of potential conflicts has at times fallen short. He said he also should have disclosed his relationships with two law firms he recommended for work at NTTA last year. In March, the NTTA's legal services committee met to discuss recommendations by the staff for a new firm that would handle condemnation proceedings for the Chisholm Trail Parkway. Three firms were under consideration for the work, including the large Fort Worth firm Cantey Hanger, which had worked on the Chisholm project for years. Barr proposed that the committee instead recommend a fourth law firm that other board members had never heard of. According to the transcript, Barr had to spell it out for his colleagues: "Newby, N-E-W-B-Y, hyphen, Davis." Newby-Davis is a new firm formed last year by Gov. Rick Perry's former chief of staff Brian Newby and Sen. Wendy Davis, D-Fort Worth. Its partners have an office in space owned by Cantey Hanger and work there as "of counsel" attorneys. None of that was disclosed at the meeting, though Barr did tell his colleagues

the smaller firm was "associated with Cantey Hanger." By requiring that Newby-Davis hire Cantey Hanger as its subcontractor, NTTA would be assured it was still buying solid expertise, he said. That all made sense to Vandergriff, who voted for the arrangement when it reached the full board later that morning. But Vandergriff said he had no idea at the time that Newby-Davis was not among the firms recommended by staff. Barr also did not mention his other ties with Newby-Davis and Cantey Hanger, or their relationships with each other. A partnership For instance, Barr shares office space with Newby and Davis in a building owned by Cantey Hanger. He didn't tell his colleagues that Newby and Davis still work for Cantey Hanger, despite also owning their own firm. And he didn't tell them that in 2009, he formed a business partnership with Newby and a Cantey Haney lawyer named David Chappell, called Newby Barr Chappell Consulting. Chappell calls the partnership "an embryonic idea" that never got off the ground. "We should have dissolved it," he said. Later, when Vandergriff heard rumors about the business relationship, he asked Barr about it. Barr told him there was no relationship, and Vandergriff dropped it. Barr later said he had simply forgotten and hadn't meant to mislead Vandergriff. "It is a mistake on my part. It shouldn't have happened," Barr said in an interview with The News. "I should have disclosed that, and I would have disclosed it had I remembered." Barr said he had assumed the business had been dissolved previously. The business was dissolved in late October, according to paperwork filed with the Texas Secretary of State. And while he has changed the ethics rules at NTTA to require board members to be more forthcoming about their business and financial interests, Barr has yet to formally disclose another business he formed with Chappell. The two former politicians formed B. C. Collaborations in 2010, according to its articles of formation on file with the state. Chappell said the business is active and that it helps persuade businesses to relocate to Fort Worth. When asked about the business last week, Barr said he saw no need to tell his colleagues that a Cantey Hanger lawyer was his partner when he persuaded them to hire the firm. "David Chappell is 'of counsel' at Cantey Hanger and is not a partner in the law firm," he said. "There was no conflict and my business relationship was not relevant." Draft ethics policy Nevertheless, Barr has insisted he will back tighter ethics rules in the future,

including annual financial disclosures like those already required for many state and local appointees. Such a rule would likely have disclosed his relationships with Chappell. A draft ethics policy that could require such disclosures has been approved in committee and, after review by NTTA's in-house lawyers, could be ready for a vote early in the New Year. The disclosures that are common at many other local and state agencies require officials to list all business affiliations, making it less likely that one could slip by a board member's notice. State law does not prevent board members from voting on a contract that benefits their friends, their office mates or, even in many cases, their business partners. In some ways, that is a good thing, said NTTA board member Mike Nowels, a former Lewisville City Council member. Boards like his are full of people with long careers in business and public service. Often, he said, they are put on boards because of their success in those fields. "You don't get put on a board like the NTTA or any other public board because you sit on your couch all day and watch Oprah," he said. "You have usually achieved some prominence, and that means you have made a lot of relationships. "But do we need to take a hard look at our conflicts policies and make some changes? We probably do," he said. "I am sure what we are doing is following the law, but we probably need to take a new look." Ethics policies at other agencies A look at how ethics policies at the North Texas Tollway Authority compare with those at some other agencies: Require annual financial disclosure forms? When must members abstain from voting? Must an abstaining member leave the room during discussions? North Texas Tollway Authority No If, under Chapters 171 and 176 of the Texas Local Government Code--, a vote would pose a conflict of interest. No Dallas Area Rapid Transit Yes If a vote presents an actual or potential conflict under Chapter 171--, or if it would appear to a reasonable person to directly or indirectly provide a special benefit to the director.

Yes Texas Transportation Commission Yes When a member "has a personal or private interest in a matter pending before the commission." TTC lawyers say that is interpreted conservatively. Not required by statute. TTC lawyers say commissioners often interpret abstention to require their absence. City of Dallas (council, commissions, boards) Yes Same as NTTA, plus additional prohibitions restricting votes that would affect members' employers, clients or other business interests. Yes Dallas/Fort Worth International Airport board Yes Same as NTTA, plus additional prohibitions restricting votes that would affect members' employers, clients or other business interests. Yes Chapter 171 bars directors or local government policy makers from voting or discussing matters if the following conditions are met: A parent, child, spouse or the director owns 10 percent of more of the firm's voting stock; owns 10 percent -- or $15,000 worth -- of the fair market value of the business; derived more than 10 percent of his or her income from the firm; or has a real estate interest in the firm or property worth more than $2,500. Chapter 176 bars participation by a director if a matter before the board involves a firm that has paid the director or his family income of more than $2,500 or given gifts totaling more than $250 within the past 12 months. SOURCE: Dallas Morning News research ___ (c)2012 The Dallas Morning News Visit The Dallas Morning News at www.dallasnews.com Distributed by MCT Information Services LOAD-DATE: January 1, 2012 LANGUAGE: ENGLISH